Study: Incomes Fail to Keep Pace with Rising Housing Costs
By Amilda Dymi
WASHINGTON-Higher living costs indicated by large increases in a wide variety of housing expenses other than higher mortgage costs are impacting both homeowners and renters’ ability to cope with the current economic crisis and more specifically with foreclosures, a recent study finds.
Entitled, “Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters,” the study conducted by the National Housing Conference research affiliate, Center for Housing Policy, found that between 1996 and 2006, all the major categories of homeowner expenses increased faster than incomes.
Mortgage payments increased 46%, utilities 43%, property taxes 66% and property insurance 83%, compared to a mere 36.3% increase in homeowner incomes. Similarly, during this period rents increased by 51% while renter incomes increased only 31.4%. In addition, increases in the cost of heating oil, natural gas and gasoline have further lowered families’ buying power.
It shows that mortgage payments are only one of several factors contributing to rising housing and living costs, which are “adversely affecting virtually all segments of the housing market – homeowners and renters, new and longtime homeowners, and households with and without mortgages.”
The study found nearly one-in-six households – some nine million homeowners and nine million renters – spent more than half their income on housing in 2006, “which is a share of income far in excess of the 30% threshold generally considered affordable.” (In this study, housing expenses include rent or mortgage payments as well as the cost of utilities, property taxes, insurance and maintenance).
“By documenting the substantial increases in a wide variety of housing expenses, this study shows that the nation’s housing concerns extend beyond higher mortgage payments,” said Center for Housing Policy chairman John McIlwain, a senior resident fellow at the Urban Land Institute, and Ronald Terwilliger, chair for housing. “To get the American economy back on its feet, we will need to look comprehensively at helping Americans afford the full ‘costs of place,’ which include the costs of shelter, utilities and transportation.”
Findings show housing expenses increased “at a pace that far outstripped growth in income.” Housing expenses for homeowners increased by 66% in the 1996-2006 period, while incomes grew by 36%. For renters, the increase was 51% compared to 31% income growth. The median income of renters at slightly more than half the median income of homeowners did not change over the 10-year period.
Housing expenses increased by an average of $5,314, or 64.9%, which is much higher than other major expenses such as food at $1,412, or 30.1%, transportation at $2,126, or 33.3%, and even health care at $996, or 56.3%, while median incomes rose 35.8%.
In 2006, homeowners typically spent 26.2% of their income on housing expenses up from 21.5% in 1996 – while renters spent 29.4% of income, up from 25.6%.
Mortgage principal and interest payments are generally the largest housing expense for homeowners with mortgages, consuming over one-fifth of incomes. From 1995 to 2005, these payments increased almost 46%, outpacing the 36% increase in the median homeowner income. An increase that in reality is even higher given that the available data “do not fully reflect the increased costs associated with interest rate resets on mortgages offered with initial teaser rates and the widespread use of option ARMs” and their higher mortgage payments which are being phased in over the 2006 to 2010 period.
Average property taxes, which typically account for just over 4% of a homeowner’s overall income, from 1996 to 2006, increased nearly 66% while the change in homeowner income was at 36.3%, or less than half the rise in average home values of 137.3%.
